How High Could Uber Stock Go?

Uber (NYSE:UBER) is soaring after finally achieving a year of overall profitability. Shares of the ridesharing company have risen by more than 120% in the last year.

Uber is the undisputed king of the ridesharing market at the moment, so will future earnings justify its price tag and how much higher could the stock eventually go?

Plenty of Room for Earnings Growth

In Uber’s full-year report for 2023, the company detailed net income of $1.89 billion for the year. This marked a turning point for the previously unprofitable company.

In 2022, for example, Uber lost $9.1 billion. Though modest by comparison to its $37.3 billion in total revenue, the fact that the company turned a profit at all has justified years of investor enthusiasm for the stock.

Uber could also be entering a period of sustained high earnings growth. Over the coming five years, analysts project compounded earnings growth of over 40%.

It may be wise for investors to assume a lower rate, given how long it has taken Uber to become profitable and the fact that such a high rate of growth is difficult to sustain over long periods.

Even assuming that 40% rates are optimistic, though, it’s fairly clear that Uber’s earnings are on a strong upward trajectory.

Even though revenue growth has leveled off, it’s also worth considering that Uber is reliably still increasing its sales. In 2023, revenues rose by 17% year-over-year. Though certainly low by the standards set by the company in 2020 and 2021, this growth rate is quite impressive given Uber’s overall size.

In the coming 12 months, the top line is expected to rise by a further 16.3%, thus increasing Uber’s scale and potentially supporting its earnings growth.

Analysts See UBER Shares Going Higher

Over the coming year, analysts expect Uber to continue its climb as rising earnings stoke investor enthusiasm for the stock.

The median target price in the forward 12-month period is close to $85 per share, representing a gain of 17.5% from the most recent price of $76.60. As such, there is a strong possibility that Uber could still outpace the broader market in 2024.

With that said, it’s worth acknowledging that Uber’s current valuation is still quite high. Shares trade at 66.6x forward earnings and 4.3x sales.

Fortunately, the high rate of expected earnings growth mitigates much of the risk of overvaluation. Uber shares trade at a fairly reasonable 1.3x expected earnings growth.

In the event that earnings growth does underperform relative to expectations, the stock’s high value multiples could pose a liability for investors.

How Big A Concern Are Regulatory Threats?

Chief among the concerns for investors is the growing regulatory pressure on the company’s ridesharing business model.

Legal measures, including a nationwide class action lawsuit, have attempted to reclassify Uber’s drivers as employees rather than independent contractors. If successful, these measures are likely to substantially increase Uber’s labor costs and eat into earnings.

The leading ridesharing app also has one meaningful competitor left in the form of Lyft. While Uber is synonymous with ridesharing, Lyft presents consumers and drivers with a viable alternative in the United States.

Uber remains dominant in terms of market share, but investors cannot reasonably rule out Lyft’s competitive threats, especially over the long run.

A further hurdle for Uber may well be the development of autonomous vehicles by other tech companies. Though Uber has a limited partnership with Waymo, the ridesharing company doesn’t own any of the self-driving technology that is behind its driverless rides.

As such, continued developments in autonomous driving technology threaten to leave Uber in the dust or cause the company to be a broker for autonomous vehicle rides. This could cause significant disruption to Uber’s current business model and potentially result in volatility for investors.

How High Could Uber Stock Go?

According to the consensus of 48 analysts, Uber stock could rise by 11.6% to fair value of $84.60 per share.

Ultimately, Uber seems to be in for a period of substantial returns. Between current profitability, a decent moat and expanding revenues, Uber is a business that has much to offer its investors.

It’s also worth considering that Uber shares will be bolstered by an aggressive new share buyback program. Management recently authorized $7 billion in share repurchases, and it’s quite possible that further buybacks will occur as Uber looks for new ways to invest its cash flow.

On the extreme bull side, arguments are sometimes made that Uber could one day join the exclusive club of trillion-dollar companies. Given the current market capitalization of just under $160 billion, this number would imply a 6x increase and result in a share price of around $475.

While this may be possible in the long run, a much more realistic view must be taken of the stock’s prospects over the coming five years. In the past fiscal year, Uber has earned about $0.86 per share. Assuming earnings do grow at a rate of 40% over the coming five years, the company would generate around $4.60 per share at the end of that period.

Even allowing for compression of the price to a multiple of 30 times earnings as the company matures, this translates to Uber shares rising to over $125.

Given that continued growth could keep that multiple higher, it’s entirely reasonable to suppose that Uber shares could double to around $150 per share within half a decade under a best-case scenario. From there, only the company’s ability to sustainably grow its earnings would hold the stock back from gradually reaching higher levels.

On a shorter-term basis, the $84.60 price target set by analysts is likely more or less a fair expectation for the upcoming year. Even the highest price forecasts, likely representing a best-case scenario for Uber this year, only puts the stock at $100 per share. While Uber could still surprise shareholders by beating earnings growth expectations, it may not be wise to bank on much higher prices than this after the run the stock has already had over the past year.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.